The Canadian Government should negotiate a free trade agreement for aviation to allow airlines from the USA and Mexico to compete with Air Canada, a government appointed advisory panel has recommended. However, a report released by the panel advises against letting foreign carriers set-up Canadian operations to compete against the dominant carrier.

If the country cannot agree with its southern neighbours, the report suggests Canada should negotiate with other countries.

The report says that expanded services from airlines such as WestJet, Canada 3000 and Air Transat have failed to significantly lessen Air Canada's control of the domestic market where it has an estimated 75% of seat capacity and is the only carrier on most of the top 200 domestic routes. Even transborder and international competition has been "somewhat reduced" since Air Canada took over Canadian Airlines almost two years ago, says the report. Air Canada's domestic feeder network gives the merged airline and its Star Alliance partners a significant advantage, says the panel. As an example, the report says Air Canada may be charging higher interline fares to non-Star Alliance members.

The report recommends that foreign investors should be allowed to own up to 49% of a Canadian airline versus the current 25% to give carriers better access to capital.

None of the recommendations are binding on the government. Transport minister David Collenette says he doesn't think a free trade zone for aviation will work as US carriers have shown no interest in cabotage.

Source: Flight International